LATEST THINKING

BEYOND THE ZBB BUZZ

ANYTHING ZERO-BASED IS ALL THE RAGE. TIME TO SEPARATE THE FACTS FROM THE HYPE.

ZERO-BASED IS

RED HOT

Accenture Strategy conducted the largest-ever research initiative on zero-based thinking, which has evolved from a budgeting technique to an invaluable leadership tool that aligns the strategic priorities of the whole organization.

With over 91 percent of zero-based budgeting (ZBB) programs having met or exceeded their targets—along with the need to fund growth and pivot to digital business models—it’s no wonder there’s so much talk about zero-based mindset.

Only two percent of the companies surveyed had initiated ZBB before 2011. Since 2013, ZBB adoption has exponentially grown by 57 percent every year. Companies’ real-life experiences shed light on ZBB results, implementations, challenges—and what to expect next.

Most companies have ongoing cost intervention programs. But the results pale in comparison to what companies are getting from ZBB. Our surveyed company set is seeing average cost reductions of 15 percent and average bottom-line savings of more than $260 million annually.

The research also answers a “million (or billion) dollar question” about ZBB. Where are companies redirecting cost savings to support the corporate strategy? While nothing emerged as common practice around who owns the reinvestment decisions, companies are redirecting savings into growth initiatives (52 percent), digital (31 percent), other capabilities (29 percent) and the bottom line (15 percent).

As one pharmaceuticals executive explains, “We reinvest one-third into our growth initiatives, one-third in the salaries of our people, and one-third back to shareholders—and we see this as a winning formula.”

No two ZBB programs look exactly the same, but there are trends in how companies are implementing them.

ACROSS THE
ENTERPRISE

53%

APPLY ZBB
CORPORATE-WIDE

ACROSS THE
WORLD

45%

APPLY ZBB
WORLDWIDE

PACE OF
IMPLEMENTATION

45%

STAGGER ROLL-
OUTS

In addition, the research reveals that delaying a ZBB implementation by even one week could have an opportunity cost of $5 million to a global company.

CHALLENGES

NO PAIN, NO GAIN

The hype surrounding ZBB has fueled the idea that it is a silver bullet for all of companies’ cost management woes. The reality is that, like any major transformation, ZBB is not an easy fix. Anyone can do easy. Only those resilient enough to go through hardship will thrive. Companies report that cultural buy-in (67 percent), change management (41 percent) and data visibility (33 percent) are the hardest obstacles to overcome.

Companies are investing to evolve their cultures. Change management initiatives include widely-accepted tactics like communication (77 percent) and training and workshops (62 percent). Targets and incentives (15 percent) and role modelling (21 percent), which focus on truly changing behaviors, are less common.

Unlike one-time, high-level percentage cuts, ZBB is not a budgeting exercise that gets completed and everyone moves on. It is an act of culture. A mindset that becomes so ingrained in how people think and work that people do it naturally. Like breathing.

ZBx: THE FUTURE

OVER THE HORIZON

This research offers a compelling picture of the reality of ZBB today. But how will the best in the world take it to the next level? This is what’s next.

HARNESSING THE TRIPLE COMPETITIVE EDGE. Most companies are focused on ZBB for profitability. According to Accenture Strategy’s competitive agility framework, boosting competitiveness means executing well across growth, profitability, and sustainability and trust. Next-generation ZBB must be linked to all three of these dimensions.

TACKLING THE ENTIRE P&L. There is tremendous opportunity to amplify ZBB results by taking the winning principles and applying them across the entire P&L—G&A, direct and indirect labor, sales and marketing, logistics and COGS. This is something we call ZBx or having zero-based mindset.

SHIFTING COST CURVES WITH DIGITAL. ZBx creates a new “quartile zero” for how companies will work in the future. This future focus reflects a continuous improvement mentality that accounts for the impact of digital technologies, sustainability practices and other forces on enterprise-wide cost profiles.

POWERING THE CLOSED LOOP. Digital tools and capabilities can make the closed loop run more efficiently and effectively. Think of it as zero-basing the closed-loop process itself. Companies can also strengthen the closed loop by creating a ZBB Center of Excellence to support both cost/package and budget owners.

BUILDING AN OWNERSHIP CULTURE. Change management has to be a long-term process. “Decaf” approaches that do not target enduring behavior changes are not sufficient to sustain cost benefits. Employees need to understand what is expected of them and have skin in the game to drive their willingness to do it.

“ZBx is a smarter approach which gives companies forensic visibility into both spending and savings opportunities across all cost segments, so that savings can be quickly reinvested into high growth areas.”